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Obama Needs to Drop the Phony "Fairness" Issue

Obama needs to drop this phony "fairness" issue and get serious about real issues of debt, economy, and entitlement reform.

President Obama proposed the new “Buffett Rule” in his state of the Union Address, which was a minimum tax of 30% for everyone making over a million dollars.

This is a ridiculous idea, but I have not heard conservative politicians attacking this proposal head on the way it should be. The first problem is if we are going to change the tax code we should look to making it simpler not more complex. If Obama feels taxes are too low, as he clearly does, he should have the courage to discuss the reasons some people who make more money pay a lower effective rate than others with the same family situation. There are three obvious ones, capital gains tax rates, deductions, and exclusions for municipal bonds. I plan to examine these here.

Before we start, let’s look a little at the reason given for this new rule “fairness.” The implication was that Buffett or Romney pays a much lower rate than average people. This is clearly not true since 47% pay no taxes or even have a negative tax rate. This is the biggest “fairness issue” and it is bad to have so many that pay nothing, not that I think that should be changed now. According to 2009 tax data 87% of tax filers paid a lower percentage of their income in taxes than Romney. So without even looking any further the bottom 85% would have no fairness issue to complain about.

Next we need to look at the major reason for the lower rate for people like Buffett or Romney, which is the lower rate on capital gains of 15% for people with high incomes. It is important to note that Democrats have cut capital gains taxes. Bill Clinton cut them in 1997 and Barrack Obama proposed a capital gains tax cut for small businesses.

Thus, it is recognized by both parties that lower capital gains tax rates are good for the economy. Next, we should note that without any changes the capital gains tax rate goes to 20% next year under current law. Since Harry Reid and the do-nothing Democrat Senate are unlikely to accept any reasonable deal this year, we should not worry about “fixing” anything for just this year.

Again, looking at 2009 tax data, 95% of all tax filers would have a tax rate of less than 20%. Based on that data, only the richest 5% of income earners have a right to complain. However, this forgets that the capital gains tax is part of a double tax and only half of the story. The corporations Romney invested in paid corporate taxes before Romney collected his gain. Tax rates average around 25% for all corporations.

After considering the double taxation issue, there is no “tax fairness” issue at all for Romney or Buffett. Even the study that I saw that suggested increasing capital gains taxes suggested doing so in small increments to avoid a significant drop in revenues - not doubling them. In addition, many studies indicate that raising capital gains taxes will collect the same or lower amounts of money, after the negative effects on the economy are considered. I do not think it is smart to raise taxes to chase some misguided sense of “fairness” to only collect less in revenues. Obama clearly does think that way.

For the case of municipal bonds, it is not so much a break for rich taxpayers as it is a subsidy on borrowing for local governments. High income people chose to take a lower interest rate to save money on their taxes. Both get a benefit. With many local governments in debt and struggling, I do not think it is a good time to remove this subsidy on their borrowing. If we did this it should be phased in over time and done when there is a solid recovery.

As for deductions and credits, I think in general many should be eliminated for all. These are common ways for politicians to give gifts to donors or favorite constituencies. Most should be eliminated except a few like home mortgage interest, charitable contributions, and other taxes paid. For rich people the charitable contributions deduction is the one that results in the lowering of their taxes paid. If this concerns Obama he should propose capping the amount that can be deducted and lower the top tax rates.

Obama knows all this, so I have to assume he is just another dishonest politician. I heard all of his tax increases don’t come close to paying for his suggested spending increases. He has been claiming that the 30% rate is what people paid under Reagan which is inaccurate. After Reagan was finished the top rate was 28%, so nobody averaged 30% in income taxes paid.

Again, this is part of his class warfare reelection strategy. Use people’s emotions of envy and greed to get them to forget he has no solutions for any of our real issues, and to forget his miserable record. He also is not serious about working to change anything this year due to the second part of his strategy of running against Congress. Harry Reid and the do nothing Democrat Senate has gone over 1000 days without passing a budget. Reid will only bring items that have to be done or ones they have the votes to shoot down.

They will not vote on many items the house passes or will pass, that many Democrats would feel they should vote for. That is why Obama chooses the ridiculous number of 30% and moronic way of dealing with what he thinks is the issue. He does not really want to fix it, just complain about it. So let drop the divisive class warfare rhetoric, phony “fairness issue”, and get serious about the important issues.

1) http://newsbusters.org/blogs/noel-sheppard/2012/01/19/media-myth-debunked-97-percent-americans-pay-less-romneys-15-percent

 

2) http://www.heritage.org/research/reports/2010/03/obamas-capital-gains-tax-hike-unlikely-to-increase-revenues

 

3) http://www.youtube.com/watch?v=JkUCeYgEWAM&sns=em

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Bryant Divelbiss February 08, 2012 at 03:27 AM
@ Randy, Kennedy cut the top rates and increased revenues, as did Reagan. So clearly those rates were not optimal for revenue. Unless your plan is to bomb the rest of the industrialized world like we did during world war II, those rates would be even more damaging now. Then energy was also cheap. Not really logical to compare. In addition almost nobody actually earned enough to pay those rates. http://usa-wethepeople.com/2011/07/phony-tax-comparison-between-the-1950s-and-today-exposed/
Lyle Ruble February 08, 2012 at 03:36 AM
@Bryant Divelbiss...We the People, you've got to be kidding. Regan cut taxes and supposedly closed all the loopholes. Turns out he had to raise taxes and the old loopholes were replaced by new ones, bigger and better than before.
Bryant Divelbiss February 08, 2012 at 03:44 AM
The growth is the income the principle is money you already have. The capital gains tax will be 23.8% in 2014, if Obamacare is not repealed, so you will almost have the rate you want. But that is my point the Buffett rule is a stupid way to raise capital gains taxes and that the income raised still does not solve our long term issues. We must deal with entitlement spending which is the real issue Obama is avoiding with this side show. I would favor tax reform to lower rates with less "loopholes". I would not support any VAT tax unless we get a constitutional amendment limiting spending as % of GDP. More taxes will just walk down the path of Italy or the UK with an uglier ending. Government will not deal with spending if they just collect more money.
Bryant Divelbiss February 08, 2012 at 04:02 AM
I would say the Democrats are blocking all of the solutions coming out of the House while not even proposing any ideas of their own. They shot down the Ryan Budget but have not even tried to make one of their own. The Senate rejected the Obama Budget 97-0. Obama and the Democrats have decided to run against Congress and hope people are too dumb too Realize it is a Democrat Harry Reid who sets the agenda for the Senate. Even when the GOP caves like they do time after time they wont go for it. The only major Democrat initiative the GOP stopped before taking the House was Cap & Trade and I think we can all agree that was in the best interest off all Americans.
Randy1949 February 08, 2012 at 04:10 AM
@Bryant -- And then Johnson escalated the war and simply printed more money rather than raising taxes to pay for it and we had inflation. And then came the Arab oil embargo and the price of gasoline went through the roof and things have been circling the drain ever since.
Craig February 08, 2012 at 11:05 PM
When a low income family has $15,000 of earned income and gets a tax return of $10,000- it isn't a tax refund. It is an IRS gift. It basically is a form of welfare. Because of welfare reforms, this offsets those so called cuts. Any reform of entitlement usually ends up being renamed and rears it's ugly head in another way. If it hasn't- then you just haven't waited long enough. Even proud people have no problem accepting a gift from the IRS, make them wait in line and apply for it in a Gvt. office and things are different. Obama has had 3 years and has done nothing but promise to spend more than we have. Another four years of BO, and we won't have a snowballs chance for recovery.
Randy1949 February 08, 2012 at 11:41 PM
@Craig -- first of all it's a tax 'refund'. The 'return is what you file with the IRS to either get some of your withheld tax back or find out if you still owe extra. How much you might be refunded depends a lot on how much was withheld. Second, where are you getting that figure? $10,000 on an earned income of $15,000? How many children? How many wage-earners in the family -- one or two? And somebody was getting far too much of the paycheck withheld in the first place.
Bryant Divelbiss February 09, 2012 at 12:28 AM
Obama inherited an Housing bubble crash that he supported creating by helping Dodd, Frank, and Bush in maintaining the bubble. Bill Clinton should get some blame since the root issue was his changes to the CRA that eventually led to the bubble and crash. But Obama stood with Dodd in blocking any attempt to reform the system. That said he had an easy job if he had not passed Obamacare, Dodd-Frank, and his attacks on business we would have millions more employed.
Bryant Divelbiss February 09, 2012 at 12:32 AM
We should at least be able to agree the buffet rule is moronic way to raise taxes. If you want to raise taxes discuss the ones you want to raise. Also we should all agree this issue is not relevant if we will not deal with the entitlement spending issues we will fail anyway. That is my point Obama wants to divert attention from important issues he is unwilling to deal with.
Bryant Divelbiss February 09, 2012 at 12:40 AM
I am not advocating raising taxes on the bottom 47% just pointing out they pay 0% you cant count payroll taxes those forced savings for their own retirement. Also we cant call the bottom 47% really really poor they are almost the middle.
Craig February 09, 2012 at 01:13 AM
Randy: I based my comment on one example I am privy to. It is a married couple with 4 dependant kids. She works two part time jobs, an earned just under $15,000. He unemployed- zero income. They own one house free and clear, and a duplex with a mortgage. Rent on the duplex barely covers the mortgage and taxes. I have been trying to convince them to dump the duplex, any large repair will mean years of losses before they break even. Last year their Federal return was above $10,000. This is significantly higher than the withholding.
Craig February 09, 2012 at 01:18 AM
She had just over $3000 withheld.
Lyle Ruble February 09, 2012 at 01:31 AM
@Bryant Divelbiss...You make statements without sourcing and then make statements of conclusion that are not only faulty but just plain illogical. Your bias is so extreme that you are losing all perspective.
Ron Klassen February 09, 2012 at 01:53 AM
I am not a financial expert, just a small business owner trying to make a living in this economy and under this (or any) president or ruling political party. My comments are driven by one key word in the title, "fairness." I think Rep. Paul Ryan said it best: Our country was founded on the basis of fairness of opportunity, not fairness of outcome (a short definition of communism). Communism on a large scale has never worked and simply can't; personal initiative, effort, etc. are thrown under the bus and the result is anything but fair. Seems to me "fairness" is only achieved through fairness of opportunity. Many favor fairness of outcome, which is their personal right. A nation's leaders should put the needs of the nation ahead of personal leanings. Our tax system is a mess of rules, some which attempt the former while others try to achieve the latter. When one waives all the political rhetoric aside, the conflict between the two "fairness objectives" explains why no agreement has been reached. Wish it could be . . . I happen to believe "trickle-down" works, and always has. When people have more money to spend, they will; when they don't, they won't. Call it anything you like, but that sure sounds like trickle-down to me (but what do I know?). A simple tax system sounds great, but until we agree on which version of "fair" we want, it won't be "fair."
Lyle Ruble February 09, 2012 at 02:25 AM
@Ron Klassen....Please define "fairness of opportunity".
Craig February 09, 2012 at 03:55 PM
All men are created equal. My opinion is fairness of opportunity exists for those who are willing to take the risk and put forth the effort. Regardless if we should tax those more wealthy, everyone has the same fair shot at becoming wealthy. Race, religion, sex, preference, makes no difference. The only obstruction may be education, but even that can be overcome. If we had fairness of outcome, everyone would be paid the same. There would be no reason to take risks to better yourself. There would be no reason to be a good employee, a hard worker, or to become better. Students have fairness of opportunity. Those who try and achieve- usually have beter grades. Under fairness of outcome, every student would get a C- regardless of homework and test scores. This in turn would inhibit the achievers from trying, and reward those who do nothing....afterall, everyone gets the same grade.
Ron Klassen February 09, 2012 at 04:15 PM
Craig: I was struggling to put an answer to this as whole papers have been written on the subject. Your answer, in my opinion, pretty much nails it. I think our greatest problems as a nation occur when we confuse these two.
Randy1949 February 09, 2012 at 04:27 PM
@Craig -- Do you honestly believe that being well-connected (having rich, influential parents) doesn't give a person the slightest edge in employment opportunities? Like it or not, there comes a point in every career path where one person is hired in favor of ten other applicants. One person is retained in favor of one of his/her fellow workers when the company is streamlined. A few days ago, James R. Hoffa was saying how a person could make $24K a year by working two minimum wage jobs for 65 hours a week and then have money to save. (That person would have to be living in his parents' basement to have money left over, but that's beside the point.) How many years would it take that theoretical person to save enough money to start a business and become wealthy? As opposed to Mitt Romney's $57K a day for not working? Sure, Mitt worked, possibly even 65 hours a week back in his Bain days, but I daresay his father's wealth put him through Harvard and the fact that he was George Romney's son counted just a little in his getting hired. No one is asking for fairness of outcome -- just a little less stacking of the deck when it comes to opportunity. That means taxing the person who's trying to save money on $24K and year a little less and $57K a day Mitt a little more.
Randy1949 February 09, 2012 at 04:43 PM
Well, that's the typical 'born on third base and thinks he hit a home run' attitude for you.
Lyle Ruble February 09, 2012 at 05:18 PM
@Craig and Ron Klassen...Since we are not all born to a level playing field, there exists no "fairness of opportunity". There are just to many obstacles to equal and fair opportunity for all. If you are born in the wrong location, to the wrong parents, to the wrong culture, born with a disability, or in our culture, non white; then your climb up the ladder to upward social mobility is severely hampered. In a recent study it was disclosed that the US ranks 16th in upward mobility when compared with other 1st tier developed nations. Most of Northern Europe and Canada have greater upward mobility than we do. This whole concept of equal opportunity or "fairness of opportunity" is one of the American myths. In light of the fact that all the nations that are outperforming us in upward social mobility and they also have a comprehensive social safety net to provide for the minimum needs of their citizens, then the argument that providing for those needs make people unwilling to advance themselves is proved false.
Craig February 09, 2012 at 05:39 PM
Randy I don't disagree about taxing more for the wealthy. But timing is everything. So is cutting government waste, that time is now- or yesterday, or anytime. Small business loans are actually easier for a minority to obtain. My point was not about financial backing though- mainly I was talking about desire. If there is enough desire to start a business; and you are willing to work hard to do so, it can be done. For example: A man loses his job. He is not from a wealthy family. He has gone to night school for years and still was let go. He wants to open a small business but can't get financial backing from family or in the form of a loan. Cashing out his 401(k) would severely cut into his spending ability. Forming a Corporation, and rolling his 401(k) into shares of that corporation avoids taxation. He is able to purchace the equipment for his business from that. He now own three positive cash flow laundramats. Sure, he could not do it overnight like a son of a wealthy family might. I did not mean that rich people do not have advantages over the rest of us. I guess it all depends on how you see it. But the point is there is risk involved, and if you take the risk- sometimes there is great reward. To some, it is not worth it. Some have failed and regret the risk taken. Some were successful and would do it again.
Craig February 09, 2012 at 05:40 PM
cont... Desire and hard work are not genetic, it knows no racial, or socio- economic boundaries. Success may be to move from a minimum paying job to a business that pays the owner a middle class living. The deck may be stacked against those less fortunate. I have always viewed the deck as stacked against the past generation- my job is to be a stepping stone for those to come by providing for my kid to be on the next tier.
Craig February 09, 2012 at 05:45 PM
Lyle I think the last part of my above post answers your concerns. I do not think being born poor eliminates your abilities to advance upward on the socio- economic food chain. ( I hope I used that term properly ) Until we move past the envy of those more fortunate, and use that as a motivation, many people just will give up. I haven't given up. I am a realist though. I know I will not be the 1%, but maybe if I work hard enough...my legacy will get there.
Lyle Ruble February 09, 2012 at 06:00 PM
@Craig...You didn't address my concerns. All you addressed was moving your children up the food chain to give them an unequal opportunity. Have they earned that opportunity just because they happened to be born to you? Does that make them better or superior human beings? Does wealth and comfort equal better? Biologically speaking alll you are doing for your progeny is assuring that they have a better opportunity to survive and pass on your genes. It is simply basic survival of the fittest and natural selection. With my own children I have given them the gift of education, a strong moral compass, a sense of justice and empathy, now it is up to them to move forward and adapt to the challenges they will face in their lifetime. People who do not work for what they achieve, are by necessity, weaker examples of our species. My approach is to give children what they need and not what they want or more importantly what you want.
Craig February 09, 2012 at 09:49 PM
Forgive me if I am wrong Lyle, but I thought I had answered your concerns. Let me try again. Every person is not able to achieve wealth. Those born into a wealthy family are more likely to become wealthy themselves- some may just inherit the wealth. Others are groomed for wealth because the family has the means to send their child to an ivy league school, etc. Having connections also helps one become successful and wealthy. But... You can't attribute a specific income to wealth. A family earning $20,000 a year thinks those making $50,000 are rich, and so on... There are a significant number of people who do not even know they are wealthy. Many do not understand they would not run out of money if they lived to be 150 years old. Though that is the last generation of savers, and they are dying off. I understand I can not build a space shuttle myself. I do know that I can build a part of it, but not all- that is the realist in me. The realist in me also knows that I can't become a 1% er in my lifetime. My being a realist lets me accept making a better life for myself than my parents had, and making my children's lives better than mine. This is partly why my wife and I decided one child was enough. Our lifes work has been to give her the moral compass and education that we wish we had. While we may have only climbed a step or two on the ladder, we have created an opportunity for our kid to take a few more steps. (Hopefully several)
Craig February 09, 2012 at 09:59 PM
Survival of the fittest goes on in nature and in human life. Natural selection isn't a terrible thing, it is what makes any species stronger. I never really wanted to be wealthy like the 1%, I just wanted to be comfortable. Being human makes us desire more, learning to accept less than 'everything' is a learned quality. I can remember my dad when I was a kid saying look at that fool: all his money and all his expensive glitzy toys, and he hates the world...crabby SOB.
Lyle Ruble February 09, 2012 at 10:21 PM
@Craig...Although it might not seem like it, but I'm not picking on you specifically. I fully understand your position, but why should you or children or me and my children be blessed with more opportunity than anyone else? The idea of natural selection based on opportunity just bothers me. I feel like the least we can do is to make sure everyone can at least have food, shelter, clothing, an education, healthcare and an opportunity to work. If it means that I have less, then so be it. It's the least I can do to help mitigate the fact that not all have an equal and fair opportunity.
Craig February 09, 2012 at 10:33 PM
I understand Lyle, and maybe I went on too long with my explaination. Those without a disability in my opinion, ARE able to climb the ladder. Maybe not get to the top, but a rung or two is an improvement. When my kid was little, she used to say how much she liked her friend's mansions (some were quite nice), my answer to her was this: It is okay to like something others have, or even dream of it for yourself one day. But make sure you put yourself in the position to earn it on your own. Don't hope to win the lottery, marry a rich man, or inherit the means to get it- you have to do it yourself. I am not in favor of putting the sick and old out with the trash at night to die, we should take care of them.
Jeff Christensen February 09, 2012 at 11:11 PM
How am I supposed to take anything Bryant writes seriously when he provides three links at the end of his "editorial" and they are: 1. A link to a Newsbusters story. Newsbusters is a project of the discredited Media Research Center, which is run by Brent Bozell. Bozell has a history of racially insensitive comments including his calling President Obama a "skinny ghetto crackhead". 2. A link to the Heritage Foundation. The Heritage Foundation is a conservative think tank which is funded by every dog-whistle conservative funder in the nation including the Bradley Foundation, the Coors Family, the DeVos family and yes...the famous Koch Brothers. 3. A link to a Paul Ryan interview on Fox News. A fluff piece of unchecked opinions from a biased news organization. Here's the deal, if you want to have a serious discussion like a grown-up, let's use some serious sources. Until then, your submissions are nothing more than bad opinion pieces that have zero merit.
Bryant Divelbiss February 10, 2012 at 01:28 AM
First of all news sources are biased, FOX is right of center, but most are far left. The main point of my article that I took from Newsbusters was a table from the IRS which I used differently and notice I did not quote their 97% figure. I noticed the same thing from liberals like Nancy and you, is that you have no argument on the points I make. Honestly, if Obama wants to increase Capital Gains Taxes make that argument instead of the moronic Buffett rule. We both know that is because he is not trying to make serious solutions, just create distractions.

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